John Deere Boosts Revenue by Absorbing Risk

In response to a reported increase in revenue from operating leases at John Deere, Jim Grant noted that the mechanism for this “improved” performance was the company’s willingness to absorb more risk via an increase in the residual values of equipment leased. The challenge, as Grant points out, is that the value is determined when the lease is signed and that this is simply an educated guess.

“The higher the estimated value, the easier it is for the lessor-farmer (a higher residual value means lower monthly payments) and the riskier it becomes for Deere.”

Source: Jim Grant | "Dialing for Dollars" | Grant's Interest Rate Observer | 04/08/2016 | Visit